Nowhere in the lengthy letter does it spell out exactly how the flat fee adds up.
Photograph: Alamy

There is growing anger among some Lloyds and Halifax customers – those who regularly use their overdraft – after they received letters from the banks this week warning them that the cost of going overdrawn could shoot up after November.

In July, Lloyds banking group announced that it was radically overhauling its overdrafts fees, including those at Lloyds, Halifax and Bank of Scotland. At the time the bank said the move will leave most customers better off – although it admitted that 10% of account holders could end up paying significantly more.

In the past few weeks, letters to all its 20 million account holders have gone out explaining the move, and the reaction has not been entirely positive.

If you missed it, or are yet to open the letter, Lloyds and Halifax have both abandoned existing charges for overdrafts and will instead charge a flat fee of 1p a day for every £7 of overdraft used. It might not sound much, but the bank has admitted that it is equivalent to an APR of 52% – dwarfing what credit card firms charge and more akin to those applied by payday lenders.

Lloyds said in July that nine out of 10 customers will either be better off, or no worse off, than before – but that still leaves up to two million people facing higher fees.

The biggest losers from the change will be those customers who have large agreed overdrafts and use them a lot each month. Lloyds/Halifax said someone who has a £1,000 overdraft limit and uses it for 10 days a month will now pay £14.20 in fees, compared with £10.88 before. If you are almost permanently overdrawn it will cost even more.

Guardian Money reader Terry O’Shea writes: “I’ve just received Halifax’s 10-page letter to customers about its new overdraft fees. What I find astonishing is that nowhere in the entire document, filled with small print, does it translate 1p daily for every £7 you borrow into an interest rate. There is not a word about this astonishing rate of interest in the documents.”

Mary Lilley also contacted Money to ask why there was no mention of the new APR charges in the information sent to her family by Halifax. “My daughter already pays £30 a month in charges and this will easily double (after November),” she says.

In July, Lloyds said it would encourage regular users of large overdrafts to switch to a personal loan which would be cheaper. An alternative is to switch to a bank with a larger free overdraft.

Nationwide building society is offering those switching to its FlexDirect account a fee-free overdraft for 12 months – in effect giving the customer a year to get on top of their spending. For those who just dip in and out of an overdraft, the First Direct account is the best as it offers a £250 0% overdraft. Both deals are subject to approval.

Lloyds Banking Group says: “Our new approach is simple and clear, giving customers more control of their overdraft and how they manage their finances. More than nine in 10 of our customers will either be better off or unaffected.

“Anyone who is concerned about what the changes mean for them should contact us. We’re happy to talk about their individual circumstance.”